Michael,
Date sent: Fri, 7 May 2004 12:35:04 -0400
From: mganz <[email protected]>
To: statalist <[email protected]>
Copies to: [email protected], Sarah Williamson <[email protected]>
Subject: st: IV Regression with many zeros in 1st stage
Send reply to: [email protected]
> Dear Statalist colleagues,
>
> I would like to estimate the following regression:
>
> BD=aX+bS+e
>
> where BD=birth defect and S is a measure of smoking (either 0/1 or number of
> cigarettes). I would like to instrument S with cigarette prices and other
> variables (local
> smoking policy variables, eg). The problem, I think, is that > 50% of
> respondents didn't
> smoke. Does affect the appropriateness of the IV approach? Ie, can my 1st
> stage
> regression:
>
> S = cZ+dP+e
>
> be estimated if >50% of S is zero?
IV is a one-step estimator, and it doesn't matter if the "first-stage
regression" is correctly specified or not because it's not being
estimated as a structural equation. All you need is for S to be
correlated with the excluded instruments. You can check this with
the 1st-stage F stat.
A couple of additional comments:
- If you want to do IV as 2SLS and estimate the first stage by hand,
you have to include *all* the exogenous variables. That means in
your case you would include X along with Z and P.
- ...but there's no need to do it in two stages by hand; just use
ivreg (or ivreg2, the extended IV written by Kit Baum, Steve Stillman
and myself, which will provide the 1st-stage F-stat automatically if
you want it).
- One issue that you haven't raised is whether your birth defect
equation should be linear. If BD is a dichotomous, you might want to
us Joe Harkness' ivprob (probit with endogenous regressors) instead.
Hope this helps.
--Mark
>
> Any help would be greatly appreciated.
>
> Thanks,
> Michael
>
> ________________________________________
> Michael Ganz, MS, PhD
> Assistant Professor
> Dept. of Society, Human Development and Health
> Harvard School of Public Health
> [email protected]
> http://www.hsph.harvard.edu/faculty/ganz
> Ph. 617-432-2382
> Fax 617-432-3755
>
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Prof. Mark E. Schaffer
Director
Centre for Economic Reform and Transformation
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS UK
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